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Do I need a Private Placement Memorandum (PPM) to Sell Securities? Private placement memorandums (or PPMs) are disclosure documents typically used in connection with the sale of securities in a private offering. A PPM will describe the offering terms, overview of the business of the company issuing securities (i.e. business plan, management, employees, description of assets, and financial statements), industry, market, competition, use of the proceeds and risk factors involved in an investment with the company. An example PPM table of contents is below: TABLE OF CONTENTS Summary…………………………………………………………………………….. 1 Risk Factors ……………………………………………………………………….. 6 Use of Proceeds …………………………………………………………………. 11 Capitalization…………………………………………………………………….. 12 Dilution…………………………………………………………………………….. 13 Selected Financial Data ……………………………………………………… 17 Management’s Discussion and Analysis of Financial Condition and Results of Operations …………………………………………………………. 18 Business……………………………………………………………………………. 19 Management……………………………………………………………………… 22 Certain Transactions…………………………………………………………… 24 Principal Stockholders………………………………………………………… 26 Description of Securities……………………………………………………… 28 Terms of the Offering…………………………………………………………. 29 Legal Matters…………………………………………………………………….. 30 Experts……………………………………………………………………………… 31 Additional Information……………………………………………………….. 33 A PPM is considered the main disclosure document for a private offering of securities. However, many private placements are consummated without a PPM. A well-written PPM is a balance between a sales document that is appealing to potential investors and a compliance document that follows the applicable securities laws and protects the issuer from potential lawsuits or regulatory actions. A mistake in the preparation of the PPM can subject the company to lawsuits from investors, and may result in civil or criminal sanctions from state and federal securities regulators. Here is a list of the benefits and costs of PPMs. Benefits If the offering includes the sale of securities to unaccredited investors, certain exemptions under the federal securities laws require that companies provide certain disclosures. Thus, a PPM disclosure document is needed to meet the requirements for the exemption from registration. A PPM provides a written record of what was presented to investors. A PPM can help avoid liability for material misstatements or omissions under the antifraud provisions of state or federal securities law. Costs A PPM is expensive to prepare. A PPM is generally produced through collaboration of management, lawyers, and accountants and requires many hours to complete. Many private securities offerings are done with little or no disclosure documentation and as a result lower costs. However, a properly prepared PPM can serve as a quasi-insurance policy to protect the company from potential lawsuits and regulatory actions. While a PPM is an expensive document to produce it may save the company thousands of dollars in the long run. Bottom Line. If a company is issuing securities in a small offering only to accredited investors, it may be appropriate to use a beefed up business plan that includes risk factors and allows investors to request additional company records and to ask questions of management. In a large offering or one being offering to non-accredited investors, however, a well-drafted PPM is well worth the cost. (http://biztaxbuzz.com/private-placement-memorandum-ppm/) For more freshly pressed articles about Finance, Business and Law, please go to http://biztaxbuzz.com
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